EDIT: As of the February 2012 Update, the online Compendium removed references to 'Line of Sight' for this power and replaced it with 'The zone is heavily obscured'. Heavy obscurement grants total concealment to creatures within it, which is negated by the Punishing Eye. Line of Sight is still blocked by the Cloud.
The title question and the body of the question are asking two different things, and thus should be answered separately.
Does the Punishing Eye remove the Line of Sight limitation?
No, because line of sight is not the same as concealment
Does the Punishing Eye remove the concealment granted to creatures within the Stinking Cloud as a result of the blocked line of sight?
So long as the targeted creature remains within the area of effect of the Punishing Eye, the concealment granted by a blocked line of sight should be negated. However, since the blocked line of sight itself is not negated, the Stinking Cloud would continue to prevent powers that specifically require line of sight from functioning. As page 106 of the Compendium states "Typically the user of a power doesn't have to be able to see the power's targets" - so if the concealment is negated, the continued lack of line of sight has no further effect than to prevent those specific powers that require being able to see the target.
The odd conclusion that while your allies still cannot see the enemy within the cloud, it is no longer concealed thanks to the Eye can be justified via comparison to the Eye's effect on an invisible creature - the creature still cannot be seen, but loses the total concealment invisibility grants.